First Republic in limbo

This is an audio transcript of the FT News Briefing podcast episode: ‘First Republic in limbo’

Marc Filippino
Good morning from the Financial Times. Today is Monday, May 1st. And this is your FT News Briefing.

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US regulators have been racing to save the struggling lender, First Republic. Iranian authorities stopped releasing inflation data. And South Korea finds itself smack dab in the middle of US-China tensions. Plus, mining companies are eager to exploit minerals lying on the bottom of the ocean.

Kenza Bryan
An analogy that the mining sector uses is, if you could swim down there, a human being could literally pick these nodules up. They’re there for the taking.

Marc Filippino
But how do you regulate an industry 4,000 metres under the sea? I’m Marc Filippino and here’s the news you need to start your day.

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Three US banks have offered to buy all or parts of the struggling California lender First Republic. Sources tell the FT that JPMorgan Chase, PNC and Citizens all submitted bids to regulators this weekend. Regulators are struggling to save the bank, which was hit hard in the recent panic. Depositors yanked their money. And last week, First Republic reported it had lost $100bn in deposits in the first three months of the year. That raised fears that it wouldn’t be able to operate. Now, at the time of this recording, regulators hadn’t decided on a buyer. They’re still considering offers, but bids so far were submitted on the condition that regulators put First Republic in receivership. That would give the government the responsibility of overseeing and backing the failing lender.

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China recently launched a national security review of a top US chipmaker. Micron sells tens of billions worth of chips to mainland China and Hong Kong. And if China does ban Micron’s chips, it could turn to South Korea to plug that gap. With a possible ban looming, the White House is hoping South Korea’s chipmaker won’t do that. The FT’s Demetri Sevastopulo says the White House wants Seoul to hammer that message home.

Demetri Sevastopulo
So they’re basically saying to the South Koreans, if the Chinese try and put economic pressure on us or use economic coercion, it would be super helpful if the South Korean companies don’t jump in and fill that gap, because that way we can work together to make it less likely that China will employ these tactics.

Marc Filippino
So, Demetri, why is this happening now?

Demetri Sevastopulo
There’s a concern in the US which has risen in the last few weeks that China may be putting pressure on American companies in China to retaliate for some of the tough economic measures that the Biden administration has taken against Chinese companies, and in particular bans on American companies selling certain kinds of chips and chipmaking equipment to China. So, for example, we reported recently that Chinese police had raided the offices of Bain, the management consulting group in Shanghai, in what seems to potentially be some kind of retaliation. So I think there’s a broader trend here about China putting pressure on US companies and the US thinking how can we work more closely with our allies to push back against any kind of Chinese coercion?

Marc Filippino
So what does this mean for South Korea, Demetri? I got to imagine this is going to put them in a pretty awkward position.

Demetri Sevastopulo
It’s difficult because China is a huge trading partner for South Korea. It’s actually more important for South Korea than America is, in terms of exports. But China has also taken kind of coercive economic measures and put pressure on South Korean companies in the past. South Korea also wants help from America in boosting the deterrence against threats from North Korea. So South Korea really wants America’s help in certain areas. America wants South Korea’s help in this area. So it’s one of these situations where it’s a question of, you know, you scratch my back and I’ll scratch yours. But there’s always a risk involved. South Korean companies are very, very important in the chip market in China. And if you look at the global market, the three biggest makers of the kind of memory chips we’re talking about are Micron, SK Hynix in South Korea and Samsung in South Korea. So if Samsung and SK Hynix play ball with the Americans, it helps them a lot.

Marc Filippino
Demetri Sevastopulo is the FT’s US-China correspondent.

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Inflation in Iran has become kind of a mystery. The country’s statistics agency hasn’t published new data in two months, and it’s fuelling accusations that the government is hiding evidence showing that prices have spiralled to record levels. Tehran is under pressure to deliver on economic promises like containing inflation. Prices have soared because US sanctions are strangling the economy. The last time Iran’s statistics agency published data was in late February, and at that point, inflation for the year clocked in at 47.7 per cent. Iranian officials say they’ve simply delayed publishing new numbers because they’re changing the base year from which the data is calculated.

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An international oceans regulator will soon consider the first application for commercial deep-sea mining. This kind of mining has been debated since the 1960s, but now the race is on to find cleaner energy sources and many of the minerals needed for that lie at the very bottom of the ocean. To find out more, I’m joined by the FT’s Kenza Bryan. Hey, Kenza.

Kenza Bryan
Hi there.

Marc Filippino
So what seabeds are we talking about here?

Kenza Bryan
So we’re talking about the deepest, darkest depths of the ocean, around 4,000 metres deep, though that can vary. The pressure is so high that very few animals can survive. There’s a wonderful medley of animals that do exist there, like the ghost fish, the dumbo octopus. And in fact, partly because of the pressure and these potato-sized nodules that are rich in minerals like nickel and cobalt, manganese and copper have formed. And an analogy that the mining sector uses is, if you could swim down there, a human being could literally pick these nodules up. They’re there for the taking. And that’s why it’s an incredibly attractive proposition for mining companies.

Marc Filippino
OK. So if I understand this correctly, they’re not gonna have to drill down deep. They can literally just pick these up off the seabed.

Kenza Bryan
Yes. And that’s not to say that there are not costs involved, environmental risks involved. So I believe there’s a certain amount of dredging of the seabed that does take place. And then when they’re brought up to the surface using this very long kind of nozzle, some seawater and some waste does have to be put back into the ocean. Environmentalists are particularly concerned about this, and they worry that this could disturb marine life and could possibly also interfere with the carbon cycle. The main argument they put forward is uncertainty.

Marc Filippino
One company is applying for the first ever deep-sea mining licence. What do we know about it?

Kenza Bryan
The company that people tell us is at the heart of all of this, and which is triggering the push to come up with an answer by July, is called The Metals Company. And it’s a small Canadian start-up. It’s promised its investors that it’s gonna start turning revenue by next year, which means that more or less its existence depends on getting a green light from the UN-backed regulator, the International Seabed Authority. Now, the key relationship to know about that The Metals Company has is with Nauru, this small Pacific island. Nauru triggered the so-called two-year rule two years ago and this really kind of arcane piece of, ehm, the Convention on the Law of the Sea that says if a mining company and its backer asks to start commercial mining of the seabed and within two years there are still no rules in place to allow it to start doing that, the UN regulator has a legal duty, some argue, to just let it go ahead, or at least to examine its application, even in the absence of a full set of rules.

Marc Filippino
Interesting. So what could those regulations look like?

Kenza Bryan
Regulations for deep-sea mining are absolutely being hashed out as we speak. And the International Seabed Authority, this small UN-backed backed regulator based in Jamaica, is due to meet again on July 10th, the day after the two-year rule expires. And they’re trying to hash out a number of key things. They’re trying to hash out a liability regime. So who pays if something goes wrong? They’re trying to hash out environmental standards. Where can you mine? How deep do you have to and return the wastewater to? And then finally, pretty important issue as well is royalties. So how do you tax deep-sea mining?

Marc Filippino
Kenza Bryan is a Moral Money reporter for the FT. Thanks, Kenza.

Kenza Bryan
Thanks so much.

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Marc Filippino
Before we go, the FT recently sat down with an investor who has a very long-term perspective, maybe the longest of anyone. Berkshire Hathaway vice-chair Charlie Munger is 99 years old. He’s worked with the company’s CEO, Warren Buffett. You may have heard of him for decades. Munger warned that American banks are, quote, “full of bad loans as property prices fall”. He warned of a brewing storm in the US commercial property market, but he said it’s not nearly as bad as it was in 2008. Well at least, that’s kind of reassuring.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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